UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 001-15059
Nordstrom, Inc.
______________________________________________________
(Exact name of Registrant as specified in its charter)
Washington 91-0515058
_______________________________ ___________________
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1617 Sixth Avenue, Seattle, Washington 98101
____________________________________________________
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (206) 628-2111
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
_____ _____
Common stock outstanding as of May 27, 1999: 140,270,506 shares of
common stock.
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NORDSTROM, INC. AND SUBSIDIARIES
--------------------------------
INDEX
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Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Statements of Earnings
Three months ended April 30, 1999
and 1998 3
Consolidated Balance Sheets
April 30, 1999 and 1998 and
January 31, 1999 4
Consolidated Statements of Cash Flows
Three months ended April 30, 1999
and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
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NORDSTROM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands except per share amounts)
(unaudited)
Three Months
Ended April 30,
----------------------
1999 1998
---------- ----------
Net sales $1,039,105 $1,040,215
---------- ----------
Costs and expenses:
Cost of sales and related buying
and occupancy 688,196 698,300
Selling, general and administrative 314,384 309,263
Interest, net 12,009 10,232
Service charge income and other, net (27,172) (30,417)
---------- ----------
987,417 987,378
---------- ----------
Earnings before income taxes 51,688 52,837
Income taxes 20,150 20,500
---------- ----------
Net earnings $ 31,538 $ 32,337
========== ==========
Basic earnings per share $ .22 $ .22
========== ==========
Diluted earnings per share $ .22 $ .21
========== ==========
Cash dividends paid per share of
common stock outstanding $ .08 $ .07
========== ==========
<FN>
These statements should be read in conjunction with the Notes to
Consolidated Financial Statements contained herein.
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NORDSTROM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
April 30, January 31, April 30,
1999 1999 1998
---------- ---------- ----------
ASSETS
Current Assets:
Cash and cash equivalents $ 71,932 $ 241,431 $ 19,728
Accounts receivable, net 536,252 587,135 596,741
Merchandise inventories 864,832 750,269 907,322
Prepaid income taxes and other 107,301 101,572 99,316
---------- ---------- ----------
Total current assets 1,580,317 1,680,407 1,623,107
Land, buildings and
equipment, net 1,378,113 1,362,400 1,261,539
Other assets 81,194 72,600 23,342
---------- ---------- ----------
TOTAL ASSETS $3,039,624 $3,115,407 $2,907,988
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ - $ 78,783 $ 103,252
Accounts payable 391,532 339,635 382,322
Accrued salaries, wages
and related benefits 140,427 202,914 136,280
Income taxes and other accruals 86,554 83,869 83,132
Current portion
of long-term debt 105,341 63,341 51,129
---------- ---------- ----------
Total current liabilities 723,854 768,542 756,115
Long-term debt 762,821 804,893 619,505
Deferred lease credits 169,854 147,188 76,380
Other liabilities 80,672 78,131 71,839
Shareholders' Equity:
Common stock, no par:
250,000,000 shares authorized;
140,925,098, 142,114,167 and
148,721,480 shares issued
and outstanding 237,309 230,761 206,321
Unearned stock compensation (4,454) (4,703) -
Retained earnings 1,069,568 1,090,595 1,177,828
---------- ---------- ----------
Total shareholders' equity 1,302,423 1,316,653 1,384,149
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $3,039,624 $3,115,407 $2,907,988
========== ========== ==========
<FN>
These statements should be read in conjunction with the Notes to
Consolidated Financial Statements contained herein.
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NORDSTROM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Three Months
Ended April 30,
---------------------
1999 1998
-------- --------
OPERATING ACTIVITIES:
Net earnings $ 31,538 $ 32,337
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Depreciation 45,695 40,903
Amortization of deferred lease
credits and other, net (704) (538)
Stock-based compensation expense 1,720 -
Change in:
Accounts receivable, net 50,883 67,707
Merchandise inventories (114,563) (81,277)
Prepaid income taxes and other (5,729) (3,945)
Accounts payable 51,897 61,011
Accrued salaries, wages and
related benefits (62,487) (49,935)
Income tax liabilities and
other accruals 3,323 13,058
Other liabilities 1,903 5,396
-------- --------
Net cash provided by operating activities 3,476 84,717
-------- --------
INVESTING ACTIVITIES:
Additions to land, buildings and equipment (61,408) (49,929)
Additions to deferred lease credits 24,201 -
Other, net (9,403) (3,112)
-------- --------
Net cash used in investing activities (46,610) (53,041)
-------- --------
FINANCING ACTIVITIES:
Decrease in notes payable (78,783) (160,515)
Proceeds from issuance of long-term debt, net - 297,175
Principal payments on long-term debt (94) (50,156)
Proceeds from issuance of common stock 5,077 5,271
Cash dividends paid (11,355) (10,629)
Purchase and retirement of common stock (41,210) (117,888)
-------- --------
Net cash used in financing activities (126,365) (36,742)
-------- --------
Net decrease in cash and cash
equivalents (169,499) (5,066)
Cash and cash equivalents at
beginning of period 241,431 24,794
-------- --------
Cash and cash equivalents at end of period $ 71,932 $ 19,728
======== ========
<FN>
These statements should be read in conjunction with the Notes to
Consolidated Financial Statements contained herein.
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NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation
- ---------------------
The consolidated balance sheets of Nordstrom, Inc. and subsidiaries (the
"Company") as of April 30, 1999 and 1998, and the related consolidated
statements of earnings and cash flows for the periods then ended, have
been prepared from the accounts without audit.
The consolidated financial information applicable to interim periods
is not necessarily indicative of the results for the fiscal year.
The financial information should be read in conjunction with the Notes to
Consolidated Financial Statements contained in the Nordstrom, Inc. Annual
Report on Form 10-K for the fiscal year ended January 31, 1999.
In the opinion of management, the consolidated financial information
includes all adjustments (consisting only of normal, recurring
adjustments) necessary to present fairly the financial position of
Nordstrom, Inc. and subsidiaries as of April 30, 1999 and 1998, and the
results of their operations and cash flows for the periods then ended,
in accordance with generally accepted accounting principles applied on a
consistent basis.
Reclassifications
- ----------------
Certain reclassifications of prior year balances have been made to conform
with the presentation for the current year.
Note 2 - Earnings Per Share
On May 19, 1998, the Company's Board of Directors approved a two-for-one stock
split effective June 30, 1998. All share and per share amounts have been
adjusted to give retroactive effect to the stock split.
Three Months
Ended April 30,
--------------------------
1999 1998
----------- -----------
Basic shares 141,844,713 150,220,670
Dilutive effect of stock options
and restricted stock 1,131,501 537,874
----------- -----------
Diluted shares 142,976,214 150,758,544
=========== ===========
Antidilutive options 0 293,942
=========== ===========
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NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 3 - Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting For Derivative
Instruments and Hedging Activities." SFAS 133 requires an entity to recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company expects to
adopt SFAS 133 in the fiscal year beginning February 1, 2001. Adoption of this
standard is not expected to have a material impact on the Company's
consolidated financial statements.
Note 4 - Segment Reporting
The following tables set forth information for the Company's reportable
segments and a reconciliation to the consolidated totals:
Retail Credit Corporate
April 30, 1999 Stores Operations and Other Eliminations Total
- ---------------------------------------------------------------------------------------------------
Net sales and revenues to
external customers $ 994,274 - $ 44,831 - $1,039,105
Service charge income - $ 28,378 - - 28,378
Intersegment revenues - 4,977 - $(4,977) -
Net earnings 53,358 7,674 (29,494) - 31,538
Retail Credit Corporate
April 30, 1998 Stores Operations and Other Eliminations Total
- ---------------------------------------------------------------------------------------------------
Net sales and revenues to
external customers $ 991,705 - $ 48,510 - $1,040,215
Service charge income - $ 31,451 - - 31,451
Intersegment revenues - 5,430 - $(5,430) -
Net earnings 53,387 6,691 (27,741) - 32,337
- ---------------------------------------------------------------------------------------------------
Note 5 - Contingent Liabilities
Because all of the lawsuits described below are in their preliminary stages,
the Company is not in a position at this time to quantify the amount or range
of any possible losses related to those claims. The Company intends to
vigorously defend itself in the described cases. While no assurance can be
given as to the ultimate outcomes of these lawsuits, based on preliminary
investigations, management currently believes that resolving these matters will
not have a material adverse effect on the Company's financial position.
Cosmetics
- ---------
The Company is one of nine defendants along with other department stores in
nine separate but substantially identical lawsuits filed in various Superior
Courts of the State of California in May, June and July of 1998. The cases,
7 of 13
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 5 - Contingent Liabilities (cont.)
which have now been consolidated in Marin County state court, seek class
certification for all California residents who purchased cosmetics for personal
use. The complaints allege that the Company and the other department stores
collusively control the sale price of cosmetics by charging identical prices,
agreeing not to discount cosmetics and urging cosmetic manufacturers to refuse
to sell to stores which discount cosmetics. The plaintiffs seek treble damages
in an unspecified amount, attorneys' fees and prejudgment interest.
Defendants, including the Company, have answered the complaint denying the
allegations. Discovery has just commenced and defendants have begun the
process of responding to plaintiffs' discovery requests.
Nine West
- ---------
The Company is one of 11 defendants in 12 substantially identical
lawsuits filed in Federal District Court in New York in January and February
of 1999. In addition to Nine West, a manufacturer of non-athletic footwear,
other defendants include various department stores and specialty retailers.
The lawsuits purport to be brought on behalf of a class of persons who
purchased Nine West footwear from the defendants and allege that the retailer
defendants conspired with Nine West and with each other by agreeing to minimum
prices to be charged for Nine West shoes. The plaintiffs seek treble damages
in an unspecified amount, attorneys' fees and prejudgment interest. All of the
lawsuits now have been consolidated in Federal District Court in New York. The
defendants have moved to dismiss the consolidated complaint rather than file an
answer, and briefing on the motion is complete. The defendants are awaiting a
hearing on the motion in June. The Court has stayed discovery pending its
decision and plaintiffs have not yet moved for class certification.
In addition, both the New York Attorney General and the Federal Trade
Commission have opened investigations into the allegations contained in the
consolidated lawsuit. The Company and the other defendants have begun
submitting documents and information to these agencies.
Saipan
- ------
The Company is one of 28 defendants, which include 17 United States
retailers and buyers and 11 manufacturers, in an action filed in Federal
District Court in Los Angeles on January 13, 1999 (the "Federal Complaint"). A
companion action was contemporaneously filed in state court in San Francisco
against 18 defendants, consisting of United States retailers and buyers
including the Company (the "State Complaint"). The Federal Complaint purports
to be filed as a class action on behalf of persons who have been employed in
garment factories since 1988. The State Complaint is a purported public
interest private attorney general action concerning garment manufacturing
conditions in Saipan. Both lawsuits allege 'sweatshop' conditions in certain
Saipan factories, some of which manufacture clothing which has been sold to the
Company.
8 of 13
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 5 - Contingent Liabilities (cont.)
In the Federal Complaint, all of the defendants, including the Company, have
filed motions to transfer the venue of that case to Saipan. That motion is
noted for consideration on July 12, 1999. The retailer or buyer defendants,
including the Company, have responded to written interrogatories concerning
witnesses and documents that relate to the Saipan garment business. The
retailer or buyer defendants, including the Company, also have submitted a
motion to dismiss all of the causes of action in the Federal Complaint, other
than the claim for false imprisonment, on the grounds that the allegations of
the complaint fail to state a claim upon which relief can be granted. In
addition, the defendants, including the Company, in the State Complaint have
filed a motion to dismiss the claims asserted in that lawsuit. The hearing on
that motion is currently unscheduled.
The Company is also subject to other ordinary routine litigation incidental to
its business and with respect to which no material liability is expected.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Management's
Discussion and Analysis section of the Nordstrom, Inc. Annual Report on Form
10-K for the fiscal year ended January 31, 1999.
Results of Operations:
- ----------------------
For the quarter ended April 30, 1999, diluted earnings per share were $0.22,
an increase of 4.8% over the $0.21 achieved in the prior year. Diluted
earnings per share reflects $0.02 per share of non-recurring costs related to
the relocation of the Company's data center from Seattle, Washington to Denver,
Colorado.
During the first quarter of 1999, sales decreased 0.1% compared to the same
quarter in 1998. Comparable store sales declined 2.6%, reflecting lower
merchandise levels, which in some cases negatively affected product assortment
depth and mix.
Cost of sales and related buying and occupancy expenses as a percentage of net
sales were 66.2% for the quarter ended April 30, 1999, compared to 67.1% for
the quarter ended April 30, 1998. The decrease, as a percentage of sales, was
due primarily to higher merchandise margins resulting from favorable pricing
strategies and lower markdowns. The decrease in cost of sales was partially
offset by increased occupancy costs due primarily to new and remodeled stores.
Selling, general and administrative expenses as a percentage of sales were
30.3% for the quarter ended April 30, 1999, compared to 29.7% for the quarter
ended April 30, 1998. The increase was due to several factors. Management
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT.)
expenses increased due primarily to additional personnel and consulting
resources related to the Company's strategic and planning initiatives.
Information services costs increased due primarily to non-recurring costs
related to the Company's data center relocation from Seattle, Washington to
Denver, Colorado, and higher information system operational costs. These
increases were offset by decreased credit expenses due to lower bad debt costs,
and lower sales promotion costs due to the timing of certain direct mail
projects.
Interest, net increased $1.8 million compared to the same quarter in
1998, reflecting higher borrowing levels as a result of the Company's share
repurchase activity.
Service charge income and other, net decreased $3.2 million for the quarter,
compared to the corresponding period in 1998, due primarily to lower
accounts receivable balances on which the Company earns service charges.
Liquidity and Capital Resources:
- --------------------------------
During the quarter, the Company repurchased 1.4 million shares of its common
stock for an aggregate of approximately $50 million, including $9 million
payable at April 30, 1999.
During the quarter, the Company opened a full-line store at MacArthur Center
in Norfolk, Virginia and a Rack at Howe 'Bout Arden Shopping Center in
Sacramento, California. Construction is progressing as planned on new stores
scheduled to open later this year and in 2000.
Year 2000
- ---------
The Company is taking steps to avoid potential negative consequences of Year
2000 software non-compliance and presently believes that any such non-
compliance will not have a material effect on its business, results
of operations or financial condition. However, if unforeseen difficulties
arise or if the modification, conversion and replacement activities that the
Company has undertaken are not completed in a timely manner, the Company's
operations may be negatively affected, either from its own computer systems or
from interactions with vendors and other third parties with which it does
business.
The Company is currently evaluating, replacing or upgrading its computer
systems in an effort to make them Year 2000 compliant, and expects to have
remediation efforts completed for its critical computer systems by mid-1999.
Testing is being conducted based on criticality. Non-information technology
systems, such as microchips embedded in elevators, are also being evaluated,
replaced or upgraded, as needed. Although the Company's initial assessment of
its Year 2000 compliance has been completed, reassessments are conducted on an
ongoing basis to provide reasonable assurance that all critical risks have
been identified and will be mitigated.
10 of 13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT.)
The Company's cumulative Year 2000 expenses through April 30, 1999, were
approximately $14 million. Approximately $1 million of expenses were incurred
during each of the quarters ended April 30, 1999, and April 30, 1998.
Approximately $3 million of expenses are expected to be incurred throughout the
remainder of 1999. In order to meet Year 2000 compliance goals, the Company
has redeployed existing resources. While this reallocation of resources has
resulted in the deferral of certain information technology projects, the impact
of those deferrals is not material to the Company. The Company believes that
all necessary Year 2000 compliance work will be completed in a timely fashion.
However, there can be no guarantee that all systems will be compliant by the
Year 2000, that the estimated cost of remediation will not increase, or that
the systems of others (e.g. vendors and other third parties) on which the
Company relies will be compliant.
Since 1996, the Company has been communicating with vendors to determine their
state of readiness with regard to the Year 2000 issue. Based on its assessment
to date, the Company has no indication that any third party is likely to
experience Year 2000 non-compliance of a nature which would have a material
impact on the Company. However, the risk remains that vendors or other
third parties may not have accurately determined their state of readiness, in
which case such parties' lack of Year 2000 compliance may have a material
adverse effect on the Company's results of operations. The Company will
continue to monitor the Year 2000 compliance of third parties with which it
does business.
The Company believes that the most likely worst-case scenarios that it might
confront with respect to Year 2000 issues have to do with the possible failure
of third party systems over which the Company has no control, such as, but not
limited to, power and telecommunications services. The Company has in place a
business continuity plan that addresses recovery from various kinds of
disasters, including recovery from significant interruption in conveyance of
data within the Company's network information systems. The Company is using
this plan to assist in development of more specific Year 2000 contingency
plans, which it expects to complete around mid-1999.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to the risk of fluctuating interest rates in the
normal course of business, primarily as a result of its short-term borrowing
and investment activities at variable interest rates.
During the quarter ended April 30, 1999, the Company reduced short-term
investments by $169 million, to a balance of $63 million at April 30, 1999, due
primarily to share repurchase activity, maturities of notes payable and
repayments of short-term debt.
11 of 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
The information required under this item is included in the following section
of Part I, Item 1 of this report:
Note 5 in Notes to Consolidated Financial Statements
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
--------
( 3.1) Amended and Restated Articles of Incorporation of the Registrant
are filed herein as an Exhibit.
( 3.2) Bylaws (as amended and restated) of the Registrant are filed
herein as an Exhibit.
(10.1) First Amendment to the Transfer and Administration Agreement
dated August 19, 1997 between Enterprise Funding Corporation,
Nordstrom National Credit Bank, The Financial Institutions From
Time to Time Parties Thereto, and Nationsbank, N.A. is filed
herein as an Exhibit.
(10.2) Second Amendment to the Transfer and Administration Agreement
dated July 23, 1998 between Enterprise Funding Corporation,
Nordstrom National Credit Bank, The Financial Institutions From
Time to Time Parties Thereto, and Nationsbank, N.A. is filed
herein as an Exhibit.
(10.3) Second Amendment to the Series 1996-A Supplement to Master
Pooling and Servicing Agreement dated August 14, 1996, between
Nordstrom Credit, Inc., Nordstrom National Credit Bank and
Norwest Bank Colorado, N.A., as trustee, dated February 25,
1999, is incorporated by reference from the Nordstrom Credit,
Inc. Form 10-Q for the quarter ended April 30, 1999, Exhibit 10.1
(10.4) Amendment to the Nordstrom, Inc. 1997 Stock Option Plan is filed
herein as an Exhibit.
(10.5) The Nordstrom, Inc. Profit Sharing and Employee Deferral
Retirement Plan is hereby incorporated by reference from the
Registrant's Report on Form S-8, Registration No. 333-79791 filed
on June 2, 1999.
(27.1) Financial Data Schedule is filed herein as an Exhibit.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter for which this
report is filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORDSTROM, INC.
(Registrant)
/s/ Michael A. Stein
----------------------------------------------------
Michael A. Stein
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: June 10, 1999
-------------
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NORDSTROM, INC. AND SUBSIDIARIES
Exhibit Index
Exhibit Method of Filing
- ------- ----------------
3.1 Amended and Restated Articles Filed herewith electronically
of Incorporation
3.2 Bylaws,(as amended and Filed herewith electronically
restated)
10.1 First Amendment to the Transfer Filed herewith electronically
and Administration Agreement
dated August 19, 1997 between
Enterprise Funding Corporation,
Nordstrom National Credit Bank,
The Financial Institutions From
Time to Time Parties Thereto, and
Nationsbank, N.A.
10.2 Second Amendment to the Transfer Filed herewith electronically
and Administration Agreement
dated July 23, 1998 between
Enterprise Funding Corporation,
Nordstrom National Credit Bank,
The Financial Institutions From
Time to Time Parties Thereto, and
Nationsbank, N.A.
10.3 Second Amendment to the Series Incorporated by reference from
1996-A Supplement to Master the Nordstrom Credit, Inc.
Pooling and Servicing Form 10-Q for the quarter
Agreement dated August 14, ended April 30, 1999, Exhibit
1996, between Nordstrom Credit, 10.1
Inc., Nordstrom National Credit
Bank, and Norwest Bank Colorado,
N.A., as trustee, dated February
25, 1999.
10.4 Amendment to the Nordstrom, Inc. Filed herewith electronically
1997 Stock Option Plan
10.5 Nordstrom, Inc. Profit Sharing Incorporated by reference
and Employee Deferral from the Registrant's Report
Retirement Plan on Form S-8, Registration No.
333-79791 filed on June 2,
1999.
27.1 Financial Data Schedule Filed herewith electronically